Recent Trends in Retail Loans

As per the “Trends and Progress of Banking in India 2009-10” recently released by the Reserve Bank of India, Retail credit growth including personal loan portfolio of banks had shown a spurt between 2004-05 and 2005-06 but showed deceleration in the subsequent years. This is evident from the following chart:

The fall in previous years and then marginal increase in retail credit growth between 2008-09 and 2009-10 was entirely attributable to the housing loan segment, which has suffered and is the single-largest portion of total retail credit of Indian banks. The pickup in housing loan growth was partly on account of low interest rates that prevailed during most part of 2009-10. Other retail segments such as consumer durables, auto loans and credit card receivables, however, recorded negative growth in 2009-10. Given that most retail sectors are rate-sensitive, credit to these sectors in future would be impacted by the emerging interest rate environment.

Recent RBI Decision:

Recently, the Reserve Bank of India has allowed the banks (October 1, 2010) to engage companies with large retail outlets as business correspondents has the potential to change the future of financial inclusion and branch banking in India.

With this decision, these, along with others eligible to act as correspondents like retired government employees and teachers, owners of kirana stores, operators of public call offices, agents of insurance companies and local entities such as post offices and self-help groups, can make up a formidable army which can take banking to the farthest corners of the country almost overnight without the need for new bricks and mortar branches. This can deliver every kind of a retail banking service.

• In making this decision, RBI has excluded the Non Banking Financial Companies (Large MFIs Microfinance Institutions).